iCEMA: Alternatives to Equipment Finance

iCEMA's conclave on equipment finance dwells on new finance avenues and the importance of introducing a leasing concept in the Indian construction market. P.P. Basistha reports.

The Indian Construction Equipment Manufacturers Associations (iCEMA) organized its first annual conclave on construction equipment finance in New Delhi. Its theme was 'Indian Construction Equipment & Finance Industry - Challenges, Opportunities and Innovation.' Conceding that the Indian construction equipment market is likely to touch 143, 827 units by 2023 (up from the 93,000 units in 2017-18), participants and key speakers discussed new finance avenues to sustain the growth, and the challenges thereon.

There has been growing apprehension on the part of banks and non-banking financial institutions to give loans for new equipment due to skewed rate of returns owing to delayed payment by contractors. Stalwarts from the CE manufacturing fraternity, financiers, contractors and dealers, felt that the government should accord priority status to the CE industry.

Delivering the welcome address, Arvind. K. Garg, Vice President, iCEMA & Executive Vice President & Head, Construction & Mining Machinery Business, Larsen & Toubro said, "The Indian construction equipment market is projected to grow at 134,418 units by 2021-2022. The growth in demand is likely to feature demand for new generation equipment with hybrid technologies. This will make the owning and operating cost of the equipment very competitive. So, it is imperative that the government should incentivize the industry and confer it a priority status."

In the keynote address, Sarosh Amaria, COO - Commercial and SME Finance Division, Tata Capital Financial Services Limited, said, "The growth of the CE industry in meeting the demand of the construction sector has been phenomenal. However, any roadblock in financing new plants and machinery will impede its growth. Equipment manufacturers and dealers must look to new avenues like operating and wet leasing solutions, as is the trend in advanced countries. Wet leasing should offer end-to-end services like operation, repair and training. Furthermore, there should be a floating rate of interest for financing equipment, rather than a fixed rate, so that equipment buyers are insulated against interest rate fluctuations."

According to Kaushik Madhavan, Vice President-Mobility, and Prasad Mane, Associate Director-Mobility, Frost and Sullivan, Knowledge Partners for iCEMA, "Hybrid technologies and telematics will be the mega trends that will impact demand of construction equipment, as the new technologies will ensure higher optimization of equipment. Vehicle services and total ownership management will also be key revenue drivers. All of this will increase cost competitiveness amongst brands."

R K Pandey, Member (Projects), NHAI, commented, "Based on the big-sized road projects and the tight completion schedules, we are looking forward for deployment of equipment that delivers higher levels of productivity and reliability, and cuts down project construction times. Furthermore, for timely availability of land to the contractors, we are making land surveying more scientific by using the drone-based system of surveillance."

For Ranjit Manjarekar, VP - Asset Management, Tata Projects Limited and Paresh Mehta, CFO, Ashoka Buildcon, leasing equipment appeared to be the most suitable option. They opined: "Operating and wet leasing of equipment completely insulates the contractors; as they no longer have the liability of owning and operating the equipment. It helps them keep project execution costs minimal, since the responsibility to own and deliver the required throughput remains the sole responsibility of the manufacturers."

Many speakers were also unanimous in their opinion that equipment leasing, which is a popular business practice, globally, should be encouraged in India, as it ensures optimum utilization of equipment and gives higher residual value from the equipment. But taxation issues and regulations in India are deterring the contractors.

Speakers also held that equipment performance and utilization is dependent on cash flow, so, to ensure faster project execution, all contractual obligations between project owner and contractor should be done well in advance, and the process of land acquisitions should also be carried out in advance to prevent projects from being held up.

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